It was MORE – BANG! POW! BOOM! SMASH! KLONK! KAPOW! KRAACK! OUCH!
US stocks got smashed again… By the end of the day, the Dow lost 880 pts or another 3.14%, the S&P gave back 98 pts or 3.03%, the Nasdaq shedding 255 pts or 2.77% and the Russell giving back 56 pts or 3.45%. Leaving the US markets in negative territory for the year. Dow -5.1%, S&P -3.17%, Nasdaq – 0.08% and the Russell -5.49%. Oh my, what a difference a week makes! This time last week all of the indexes were showing solid gains for the year.
European markets ended Tuesday down almost 2% (and are down again this morning), as new cases of this fast spreading virus takes over in Italy (and now new cases are being reported in Spain, France, Austria, Switzerland and Croatia leaving Germany in the direct line of fire). New cases in Iran (and possibly other countries in the Middle East) and Japan not helping the story. Then the opening bell rang at 11 Wall St, markets attempted to rally – many of the talking heads suggesting that it would be “Takeback Tuesday.” Recall futures were UP in the pre-market. Remember, the indexes ended on their lows of the day on Monday and that never sets it up well for a rally on the next day. When markets close on the lows, the usual move the next day is to go lower. That is what we saw on Tuesday. Once the markets broke down from attempting to rally, the tone changed and the indexes faded, falling into negative territory at 10:20 am. Then the CDC comes out and WARNS – that it’s not a matter of IF – but rather WHEN it will hit the US and by the way – we are not prepared for what that means. On that headline, the indexes took a hit lower. But the headlines kept coming…
Bloomberg runs with this headline:
“CDC Warns of Broad Disruption if Virus Spreads Across US”
And then CNBC runs with this headline from the CDC:
“US Health Officials Say Coronavirus Will Likely Cause a Global Pandemic”
Likely? Really? Wake up, it is already a global pandemic. No matter what the CDC says or how they define it. Come on! A pandemic is defined as “a worldwide spread of a NEW disease with no human immunity.” (BINGO!)
(Viruses that have caused past pandemics – typically originated from animal viruses. Then there is the question of a “bio-engineered virus” which NO ONE wants to talk about and that brings up a whole new set of issues – but let’s not go there!).
And then the administration comes out and says: “Hey – Don’t worry. We’ve done a great job of CONTAINING the virus.” Yahoo! Great! Wonderful – How’d you do that?
How have we been able to contain it when the rest of the world cannot? I mean China quarantined 70 million people. How’d that work? Cities like San Francisco is already declaring a “state of emergency” and there aren’t any cases there yet! NY is bracing for the first case. Will be interesting to see what Billy (DeBlasio) has to say when it hits.
The WH sending Larry Kudlow out to try and calm the markets, saying that the Atlanta GDP forecast is still calling for 2.1%, regional ISMs remain in expansionary mode, other macro data remains robust etc. All while saying: “this is the news today, it COULD all change.” (Do you think?)
Treasuries prices surge sending yields plummeting
As you would expect, Treasuries exploded higher, sending yields plunging – the 10-year down 6 bps to 1.312% – and that is below the prior low of 1.325% set on July 2016! 30-year bonds tumbled 3 bps to 1.798% – this on top of the 37 bps it has already fallen. All this because fears over the virus “killing global economic growth” sent investors galloping into the safety of US paper. This causes a whole set of other concerns. Some strategists/analysts are now concerned that the plunge in yields portends a coming economic disaster. To this I say: I’m not convinced of it. The run into US treasuries from investors around the world is a direct statement about risk and safety (think positive rates and US paper) as the yield curve has NOT inverted. The curve remains positive between the 10s and 30s, the 2s and 10s, the 2s and 5s, the 3 month and 2s, and the 30s versus the whole gamut. None of it is inverted at all. Until it does, until there is a complete inversion that lasts longer than 10 minutes, there is no fear of a recession or economic slowdown. Zero. Say it again – yields are plunging across the whole curve because prices for treasuries are rising, because demand is strong. Investors seek the safety of US paper in an anxious environment. (Anxiety caused by an unknown virus that originated in a foreign country that does not always tell the truth).
And then we get more big US multi-national’s that are now following in Apple’s footsteps. United Airlines and MasterCard to name just two by saying that they too, are now slashing estimates because the impact of this virus isn’t quantifiable. It is the “not quantifiable” piece that is causing increasing levels of nervousness. Remember, the market can deal with negative news, negative fundamentals, lower estimates etc. all items that can be quantified. But when they say we can’t offer new guidance just yet, that’s the uncertainty part that the market does NOT like and the algos can’t comprehend.
Overnight, Asian markets continued to move lower, Hong Kong announcing that they are prepared to pump $15 billion into their economy to combat the effects of the outbreak along with some of the structural changes that are happening to that city. Weaker economic news out of Australia causing stocks in that country to sell off hard.
By the end of the day – Japan -0.79%, Hong Kong -0.73%, China -1.23% and ASX – 2.31%.
European markets are getting slammed again this morning, as news that the virus is spreading across the continent. Italy is now under siege. Cases in Rome and further south in Sicily now being reported – price gouging for face masks and other protective gear being seen across the country. Prime Minister Giuseppe Conte calling for calm – saying:
“E ora di abbassare il tono. Dobbiamo fermare il panico.” Translation: “it’s time to turn down the tone, we need to stop the panic!”
Austria, France, Spain, Switzerland and Croatia have all reported their FIRST cases as the world awaits the virus to cross the border into Germany, Brussels, Sweden, Denmark etc. The virus has succeeded in taking investor psyche hostage as the indiscriminate selling washes across the world. European companies are now joining in and warning of missed estimates and lower guidance and that is adding to the pressure. As European markets opened – the selling continued sending those markets down another 2% before stabilizing and rallying back.
FTSE – 0.78%, CAC 40 -1.01%, DAX -1.56%, EUROSTOXX -1.2%, SPAIN -0.92% and ITALY -0.03%.
US futures did surge overnight – at one point UP triple digits as investors/traders attempted to allow cooler heads to prevail. But that was short lived. This morning as Europe got under way – US futures had retreated – showing triple digit LOSSES in the Dow – 225 pts or 0.83%, S&P’s down 24 pts or 0.77%, Nasdaq – 77 pts or 0.81% and the Russell losing another 8 pts or 0.52%. And at 5:30 am – US futures are attempting to stabilize – yearning to move higher with most of the indexes taking back most of the early losses. My guess – one more push lower and then the turnaround.
Remember – stocks closed on their lows again yesterday. As I noted, THAT does not bode well for today’s early action. The market is expecting more bad news and investors/traders are not waiting. This is a “shoot first/ask questions later” type of mentality. That is usually the wrong reaction. US health officials calling for state and local preparation for an outbreak while others are urging that Americans stockpile canned goods and plenty of water bottles. I suppose that residents of some of the major US cities (NY) should prepare for price gouging as well.
Now gold, which had rocketed higher over the past week, did sell off a bit yesterday, losing $38/oz. But that is sure to be short-lived. This morning we are seeing Gold up $4 trading at $1,653 as investors in that asset attempt to put this in perspective. Look, gold is gold! Period. No need to make the investment case. It is what it is.
Oil, which got hammered yesterday falling below $50/barrel for a quick second is once again under pressure, falling 54 cents or 1.1% to $49.35/barrel. Talk of disruption to supply from Libya and more cuts from the Saudis doing very little to stop the bleed. But look on the bright side, lower prices will benefit global consumers.
Now there was a fair amount of technical damage done this week and likely more to come today. Broken trend lines at the 50 and 100 day moving averages (DMA) all over the place in indexes and in individual stocks. So this needs time to repair – so proceed with caution. But like I said: it is not the end of the world at all. It is an opportunity – capisce? We could see the market flush out today and then begin the trek back to repair the damage. Stocks like Apple and MSFT are both down more than 12%, other tech names even more. Industrials like CAT are off by 11% and energy names like XOM are off 35% in one year and 25% of that loss came this year (2020). Financials like JPM are off 10% – and no matter what, it’s JPM, come on! Look to build a strong dividend paying portfolio that will allow for cash flow while giving you the equity exposure you need. This could be gift horse staring you in the face.
The S&P has now broken both short and intermediate term supports – Long term support (200 DMA) is at 3044. That is only 86 pts from where we are. The Dow and Russell broke and closed below their 200 DMAs – 27,230 and 1,574 (not bullish), leaving technicians guessing about where the next support level would be. My guess – 26,550 on the Dow and 1,534 on the Russell. The Nasdaq remains the strongest of the group – breaking its short term trend line, but holding above its intermediate term trend line. (And that is a positive)
Take good care.
Today really calls for the Giambotta! For those of you who are unfamiliar with this dish… it translates into – “clean out the fridge.” It’s a stew… and can be all vegetables or you can make it your own by adding beef, sausage or chicken.
The traditional recipe for Giambotta calls for onions, garlic, potatoes, eggplant, bell pepper, tomatoes, tomato paste and vegetable broth and seasoning. It is really up to you… you can add or delete any veggie you want as it is open to interpretation. Although the dish is mostly vegetarian, feel free to add in beef stew meat, sweet sausage or even cut up chicken pieces…
Preheat a heavy bottom pot – add olive oil and crushed garlic – sauté. Next add chopped onions and cook over med temp… Prepare the other veggies… cut up the potatoes, eggplant, zucchini and peppers… add to pot and season with s&p… cover and cook…
Now add in a can of crushed tomatoes and the veggie stock (if you want it thicker then add in the small can of tomato paste) – bring to a boil and then turn to simmer… If you are adding meat (stew sized cubes) – then in a frying pan – quickly brown the meat – season with s&p and then add to the pot… toss in some fresh basil and let simmer for 20 mins…
When ready you can serve this as a side dish or if you put it over rice (or even pasta – Rigatoni) you can make it a meal. Toss in some fresh made garlic bread and Bingo!